Enough glitzy debt: time for regime change

Make no mistake,” a friend told me over lunch in Abu Dhabi a few months ago. “Everyone here knows Dubai’s in trouble, but this isn’t the new Lehman. Abu Dhabi will help them out but there will be a heavy price to pay. Dubai will soon be a suburb of Abu Dhabi.”

While global financial markets nervously await clarification of Dubai’s debt restructuring, the Emirates are alive with talk of political change. Abu Dhabi’s refusal to sign a blank cheque to underwrite Dubai Inc has shocked the world far more than it has shocked the region.

It has been common knowledge here for months that Dubai’s property investment business is on the ropes. The real talk is not of how to plug the gap in DubaiWorld interest repayments but of how Abu Dhabi is going to pick and choose how it helps its neighbour.

Dubai’s misfortune is a long- awaited opportunity for Abu Dhabi and it is positively glowing with schadenfreude. It has watched its wayward neighbour squirm as its global property and investment markets are exposed and is poised to assert its position. The bailout symbolises the start of a push for regional supremacy, a changing of the guard in the United Arab Emirates.

Though barely on the Western radar, Abu Dhabi, the quiet Emirate, is capital of the UAE and is the world’s richest city. This is where the real power and influence in the region reside. And Abu Dhabi has been playing a long game. Quietly amassing vast oil riches (the true extent of which are unknown) it has been nursing a long-term objective: centralisation of the UAE under the leadership of the ruling Al Nahyan family, securing greater political power and influence abroad in the process.

The strategy is simple. Abu Dhabi will cherry-pick the successful big- name assets and transfer them to Abu Dhabi control. These deals have been under discussion for some months. It has already sought to secure majority stakes in the Burj skyscraper and the Emirates airline, symbolic jewels in Dubai Inc’s crown.

But Abu Dhabi has a precarious balance to strike. The volume of Dubai’s debt is still undisclosed. Figures of about $70 billion may be hugely conservative, with some officials suggesting twice that amount. This uncertainty fuels international fear. For all its Islamic duty to face-save brothers in need and preserve the financial stability of the region, Abu Dhabi does not want to burden itself with unravelling undisclosed bad debts.

If it wanted, Abu Dhabi could resolve Dubai’s problems in an instant. The $750 billion in its sovereign wealth fund is the tip of the iceberg. Most of the wealth here is undisclosed and held privately in the hands of the Royal Family and a mix of government-owned investment companies. Through the boom years this blurring of the line between State and private wealth has been readily accepted. Now, as Aidan Birkett, of Deloitte, and a planeload of financiers arrive in the UAE to broker deals, it may be the time when ruling family and private money are used to fill in financial black holes. Debts to banks such as Barclays, RBS and HSBC are unlikely to be publicly plugged.

But while the Makhtoums, Dubai’s ruling family, continue to impose a news blackout locally we must assume that the British Government will try to do private deals that ensure the £250 million owed to British companies is paid.

Such privacy, lack of accountability and strategic largesse are all characteristics of the Bedouin tribes; an unchanging and unsettling foundation to business here that obscures the view of those seeking clarity and transparency. In short, this is an Arab thing.

The bigger prize is political change for the region. Abu Dhabi wants to take control culturally and politically. It knows that Dubai, under the glitzy reign of the Makhtoums, expanded rapidly and in ways that Abu Dhabi felt to be un-Islamic. It is hoping that the loss of face among Dubaians and among the world’s business communities will provide the impetus for a change of ruler.

Though undeclared, the hope is that these events will force the leadership of Dubai to resign. In a modern playout of ancient tribal politics Abu Dhabi wants Dubai reined in and put on a short leash. They are looking for the Makhtoums to fall in line with Abu Dhabi’s new vision for a modern Islamic state. “The only question is, how obstinate will Dubai’s leaders be,” says Christoper Davidson, a Gulf expert at Durham University.

As the state of Dubai’s finances becomes increasingly clear, the position of the Makhtoums becomes increasingly difficult. Financial probity and personal integrity are the cornerstones of business. In a country where a dud cheque is a criminal offence, even the smallest slip is magnified. The story breaking just before Eid was a tactic to buy time to sort things out.

On the ground the inevitable shift away from Dubai has already begun, albeit cloaked in secrecy. Carillion the building firm, is just one of many quietly relocating its business. Five thousand of its twenty thousand staff have been moved from Dubai to Abu Dhabi over the past 18 months.

“No one would lose sleep over Dubai surrendering its autonomy” says Mr Davidson. “Abu Dhabi is a proper state, well administrated and in a far better position to handle the debt.” Much of what we have witnessed is bluster between the tribes. Abu Dhabi will not let Dubai collapse. It is not in the interests of the UAE for that to happen. There is too much pride at stake. But it knows that this is its opportunity to wrestle quietly for supremacy. With a city vision — the 2030 plan — already transforming Abu Dhabi, Dubai’s fall is indeed fortuitous.

The city and business plans laid down by Sheikh Zayed, late ruler of Abu Dhabi and founder of the UAE, have stood his people in good stead. Now, with Dubai’s delusions of grandeur gone, we are, at last, seeing a long-awaited shift of influence in the Gulf.

Jo Tatchell, the author of A Diamond in the Desert.